Industrial: Dual Demand Driving + Supply Rigidity Constraint Lithium Battery Material Industry Prosperous Upward

Industrial released a research report stating that the global demand for lithium batteries is expected to increase by 26% year-on-year by 2026. The industry supply structure is showing an upgraded feature of "few and excellent", with order resources accelerating towards leading companies, and leading market share and profitability expected to recover. The rigid contraction on the supply side and high growth on the demand side will resonate and lead to a restructuring of the industry structure, collectively supporting the profit recovery brought about by the upward trend in lithium battery material prices. It is recommended to focus on the lithium hexafluorophosphate and lithium iron phosphate segments, with a focus on heavy asset- and long-term copper foil and separator segments to build price recovery certainty. Key points from Industrial are as follows: Dual resonance of power storage and energy, with lithium battery demand continuing high growth trend by 2026 According to SNE research data, the global electric vehicle registrations reached 17.102 million units from January to October 2025, a year-on-year increase of 25.5%, mainly due to the resumption of new energy vehicle subsidies in Europe and domestic policies to replace old cars in China. According to Xinlu information, global energy storage battery shipments reached 428GWh from January to September 2025, a year-on-year increase of 90.7%, mainly relying on the scale of independent energy storage projects in China and installations in the U.S. Looking ahead to 2026, lithium battery demand is expected to maintain a high growth trend. In the field of power batteries, European car manufacturers are accelerating their electrification transformation under the scrutiny of carbon emission policies, coupled with the restart of electric vehicle subsidies, which are expected to continue to stimulate end demand. In the domestic market, the penetration rate of electric heavy trucks is increasing, providing important support for the growth of power battery demand. In the field of energy storage batteries, after the implementation of domestic electricity price policies, the economic viability of independent energy storage projects has significantly improved, driving demand acceleration; in overseas markets, the demand for data center storage has become a new growth engine, combined with the support of traditional energy storage policies in Europe and the U.S., opening up growth space for energy storage batteries. The industry expects the global demand for lithium batteries to increase by 26% year-on-year by 2026. Optimization of lithium battery material supply side: Capacity restructuring under profit constraints The oversupply of lithium battery material capacity in the early stage led to low-price competition, with most companies facing consecutive losses, high industry average debt ratio, continuous increase in financial pressure, coupled with the uncertainty of long-term profit recovery in the material segment further strengthening the cautious attitude of companies. Most manufacturers are focusing their resources on improving existing production efficiency and cost optimization, rather than blindly expanding. The capacity expansion capability and willingness of lithium battery material companies have significantly weakened. There were no large-scale expansion plans implemented in 2025. Under the dual pressure of profit and industry competition, back-end capacity is accelerating clearance, and small and medium-sized companies are the first to fall into operational difficulties due to insufficient technological barriers and weak cost control capabilities. Some links have significantly reduced effective production capacity, combined with further tightening of environmental protection policies and dual control requirements for energy consumption, increasing the threshold for industry access. Some small and medium-sized manufacturers without compliance capabilities have difficulty in resuming or expanding production, accelerating their exit from market competition, and the rigidity constraint on the supply side continues to strengthen. Optimization of supply side of lithium battery materials: Technological iteration leading industry reshuffle Technological upgrade has become an important driver of supply side optimization, with high-end materials such as high-voltage phosphoric acid iron lithium, 5m high-strength separator, and 4.5m high-tensile copper foil rapidly iterating, demanding higher requirements for production processes, equipment precision, and research and development investment. Leading companies, with continuous research and development investment and technological accumulation, have achieved the large-scale deployment of high-end product capacity, further seizing market share. Small and medium-sized enterprises, limited by insufficient technological reserves and lack of research and development funds, find it difficult to improve products and processes, and can only stick to traditional materials with low added value. Under the trend of increasing demand for high-end products downstream, they are gradually being phased out by the market. In this background, the industry supply structure is showing an upgraded feature of "few and excellent", with order resources accelerating towards leading companies, and leading market share and profitability expected to recover. The profit recovery of lithium battery materials has strong certainty, stemming from the resonance of supply side rigidity contraction, high demand growth, and industry restructuring under the consensus of "anti-inversion" Against the background of supply-side optimization driven by capacity constraints and technological upgrades, some material companies in the industry have further strengthened the consensus on scientific release of capacity as part of the "anti-inversion" action, already reducing planned capacity. Supply will continue to be limited in the next 1-2 years. On the demand side, there is a trend of fast growth driven by dual drivers of dynamic storage, continuing to strengthen the balance of supply and demand. In this context, core materials such as lithium hexafluorophosphate have already begun to rebound in price, with segments such as separators, copper foils, and iron lithium showing a prosperous situation of full production and overflow of orders. The overall industry capacity utilization rate is expected to continue its upward trend in 2026. The rigid contraction on the supply side and high growth on the demand side resonating with the industry restructuring will collectively support the profit recovery brought about by the upward trend in lithium battery material prices. Investment recommendations It is recommended to focus on the lithium hexafluorophosphate and lithium iron phosphate segments, with a focus on Guangzhou Tinci Materials Technology and Hunan Yuneng New Energy Battery Materials. It is recommended to focus on Do-Fluoride New Materials, Fulin Precision, Jiangsu Lopal Tech. Group, Shenzhen Dynanonic, Tonze New Energy Technology, Shida Shinghwa Advanced Material Group, and Hubei Wanrun New Energy Technology for price recovery certainty, focus on heavy asset- and long-term copper foil and separator segments. It is recommended to focus on Yunnan Energy New Material, Shenzhen Senior Technology Material, Fspg Hi-Tech, Jiujiang Defu Technology, Guangdong Jiayuan Technology, and Nuode New Materials. Risks: Macroeconomic fluctuations; changes in industry policies; lower-than-expected downstream demand; changes in overseas trade policies.